Thursday, November 4, 2010

Round One Bid “Winners” Finally Announced as New Questions Arise about Flawed Program

The Centers for Medicare and Medicaid Services announced winners of Round One of the “competitive” bidding program. The overdue announcement leaves little time to make the required administrative and operational changes before the January 1 implementation. Those changes relate to regulations including “grandfathering” notifications to patients, subcontracting arrangements, and changes in company ownership. Medicare beneficiaries have received little information to date about the coming changes.

Meanwhile, another study, by Cal Tech economics professor Charles R. Plott, outlines the severe design flaws in the bidding system. The new study concludes that the fundamental flaws in the Medicare bidding system will prevent any “quick fix.” A draft report of the study dated October 2010 concludes that:

• Good auction architectures for procurement applications do exist.• The proposed Medicare supplies auction is not a good procurement auction. It is based on an inappropriate architecture that cannot deliver services at competitive rates and qualities.• The Medicare supplies auction architecture cannot be adjusted in some simple way. There is no “quick fix”. The two central pillars of the auction are flawed. First, the price determination by the median accepted bid is not an appropriate method for determining price. Second, the ability of bidders to cancel bids is an inappropriate guide for competitive bidding strategies.

This adds to the argument made by 166 economists and auction experts, including two Nobel laureates, who have urged key congressional leaders and committees in Congress to scrap the system and start over. Click here to view letters.